Verizon May Have Finagled a Less Taxing Way to Buy Out Vodafone

Now that Verizon appears confident of a workaround to avoid a major tax burden, is Vodafone more likely to give up its share in Verizon Wireless? The advantages of a sale are clear from Verizon's perspective, but it's far from obvious why Vodafone would want to shed its stake in such a profitable business. "Nobody in their right mind would sell it unless they are in a bind," said tech analyst Roger Entner. "It's like one of the crown jewels."

Verizon Communications, which
posted a higher-than-expected quarterly profit on the performance of
its wireless business, has increased the pressure on Vodafone Group to
sell its 45 percent stake in Verizon Wireless.

The sale would give Verizon Communications full
control of the largest mobile carrier in the United States.

New Path Forward?

"With respect to Vodafone, obviously, we made a public announcement on
April 2, and I would reference all of you back to that announcement,"
said Francis J. Shammo, CFO of Verizon Communications, during
Thursday's earnings call.

"Of course, as we've always said before, we
are very interested in acquiring the 45 percent stake in Verizon
Wireless that we don't already own," he added.

"I will say, though, that there has been a lot of speculation about
the tax consequences of a purchase of this 45 percent, and we are
extremely confident that such a transaction could be accomplished in a
manner that is very tax-efficient and would not result in a tax on the
gain in that stake," Shammo said.

"This reflects the signaling that their tax lawyers and accountants
have come up with some options of what is otherwise a straightforward
sale," said JeffreyS. Silva, senior policy director for
telecommunications, media and technology at
Medley Global Advisors.
"There could be a new path forward to this sale."

Verizon Communications declined to provide further details.

Verizon Takes Verizon

A Verizon Communications buyout of Vodafone's stake in
Verizon Wireless could certainly be a profitable move.

"Without Vodafone, Verizon Communications would have full control over
the company," said Roger Entner, principal analyst at
Recon Analytics.

"Verizon Wireless is very profitable and will probably remain to be
very profitable," he noted.

V In, V Out

Aside from the suggestion that Verizon's lawyers may have crafted a
highly tax-efficient deal, why is the time ripe for the joint venture to end now?

"We have heard this for a long time," said telecommunications analyst
Jeff Kagan. "Verizon would be interested in acquiring 100 percent of
Verizon Wireless, under the right conditions. There was never any
urgency in the past. The urgency seems to be growing."

For the deal to happen, it "would have to make financial sense -- and then
Verizon would jump on the deal," said Kagan. "Everyone knows it. Even
Vodafone."

What are the potential advantages, though, for Vodafone?

"Vodafone has never wanted give up the golden goose," noted
Kagan. However, "if the right terms can be agreed upon, this deal will happen."

Still, if those terms don't gel, the moment could be lost.

"The major obstacle is that Verizon Wireless is as good an
investment as they come," added Entner. "Nobody in their right mind
would sell it unless they are in a bind. It's like one of the crown jewels."